Economics Principles and Fundamentals

This set of vocabulary flashcards covers the 10 basic principles of economics, including scarcity, opportunity costs, incentives, market structures, and various subfields of study discussed in the lecture.

Scarcity

The concept that society has unlimited wants and limited resources, making it impossible to produce all goods and services people desire.

Economics

At its most basic level, the study of human behavior and how people make decisions.

Macroeconomics

The branch of economics that examines the big picture and how an entire economy functions.

Microeconomics

The branch of economics that focuses on the small picture, such as individual behavior or how an individual business makes decisions.

Cliometrics

A subfield of economics that represents the overlap between history and economics.

Trade-off

The reality that to get something you want, you must give up something else you want, affecting choices regarding income, time, and society.

Efficiency

An economic concept referring to the size of the economic pie.

Equity

An economic concept referring to how fairly the economic pie is divided among members of society.

Cost

Defined more generally by economists as whatever you give up to get something, including dollars, effort, and time.

Opportunity cost

The value of the next best alternative given up when making a decision.

Economic incentives

Tangible rewards, such as dollars or points in a class, that drive specific behaviors.

Social incentives

Incentives created by society, such as the desire for acceptance or the avoidance of ridicule.

Moral incentives

Incentives driven by an individual's internal sense of what is right and what is wrong.

Marginal change

An incremental change to a plan of action, functioning at the "edge" of decision-making.

Decision-making Rule

A decision maker takes an action if and only if the marginal benefit ($MB$) is greater than the marginal cost ($MC$).

Zero-sum game

A situation, like poker, where any gain by one participant is necessarily a loss for another.

Positive-sum game

A situation, such as voluntary trade, where all participants can walk away having gained from the exchange.

Free market

A system where sellers are free to sell and consumers are free to buy within the bounds of the law, involving no lies about quality or illegal transactions.

Planned economy

An economic system, such as socialism or communism, where the government owns the means of production and controls economic activity.

Market failure

A situation where the free market fails to organize economic activity efficiently on its own.

Externality

A type of market failure that occurs when one person's behavior imposes a cost on someone else.

Standard of living

The level of wealth and comfort in a country, which depends on its ability to produce goods and services that others want to buy.

Inflation

A rise in price levels that occurs when a government prints too much money.

Short-run trade-off in macroeconomics

The inverse relationship between inflation and unemployment that the government must balance in the short term.

Factors of production

land labor capital entrepreneurship

marginal cost

opportunity cost from pursuing an incremental increase in activity

marginal benefit

benefit from pursuing incremental increase in activity